Arbitration has long been central to commerce, but its processes have never been a good fit for the business world. Now, proposed changes to the IBA Rules look set to bring it into line. By Lord Goldsmith QC and Sophie Lamb
If attendance by some 550 lawyers at a recent IBA Arbitration Day in London is anything to go by, international arbitration continues to thrive. Yet arbitration has not been without its critics in recent times.
Arbitration has, for centuries, played a significant role in commerce, responding to the desire of international business for specialised and expeditious resolution of commercial disputes by an experienced professional in a fair and neutral manner. Indeed, from the merchant courts of the Middle Ages to the modern iteration of arbitration, those goals have remained constant.
Over time, it has continued to grow in popularity. In fact, in the resolution of disputes arising out of international transactions and investments, arbitration has become so widespread it has rather become a victim of its own success.
In 1992, the International Chamber of Commerce (ICC) reported 337 new cases. Last year, 817 Requests for Arbitration were filed with the ICC Court. Other institutions, particularly regional arbitration centres, continue to report a buoyant caseload. And, as confidence in the modern system of arbitration grows, now even the most complex, financially significant and politically sensitive disputes are being referred to arbitration, whether as the result of contractual agreement or through an offer to arbitrate contained in an investment treaty. Today, the mega cases are no longer quantified in the many millions, but instead in the many billions.
It is not only the nature of the disputes being referred to arbitration that continues to evolve. As arbitration grows in popularity in new and emerging economies, the body of arbitration users continues to diversify, admitting new parties (private and sovereign), from varied cultures, with widely differing experiences and expectations. This combination of change, volume, diversity, experience and complexity presents opportunities and challenges for end users, counsel, arbitrators and institutions alike.
The time, the cost
In recent times, some end users have questioned whether the system of arbitration remains truly aligned with the needs and expectations of business. Much of the debate has centred around time and cost, and various proposals have been advanced in the context of those discussions, the most prominent of which is perhaps the 2007 report of the ICC Commission, Techniques for Controlling Time and Cost in Arbitration. Those guidelines were intended to create a new dynamic and encourage the “proactive involvement of the tribunal in the management of the proceedings”.
More recent proposals and innovations suggest that guidelines alone are not enough. Having been under consultation since November 2009, the final draft of the proposed revisions to the IBA Rules on the Taking of Evidence in International Arbitration have now been submitted to the IBA Council for approval at its next mid-year Council Meeting in May. Warmly received, these proposals contain a number of innovations aimed at providing an ”efficient, economical and fair process for the taking of evidence”.
The rules also confront the complex issue of legal privilege in international disputes by suggesting standards for resolving those issues in the context of disputes involving parties and counsel from different legal backgrounds. The rules provide that the tribunal can take into account any need to protect confidentiality of statements made in connection with obtaining legal advice or seeking settlement, the expectations of parties and their legal advisors when the document was created, and “the need to maintain fairness and equality as between the parties, particularly if they are subject to different legal or ethical rules”.
Significantly, the revisions to the IBA Rules suggest a clear shift towards a more prescriptive approach to arbitration. Where adopted, the new rules will require the tribunal to engage with the parties on the issue of evidence at the earliest appropriate time in the proceedings and encourage it to identify to the parties at that point any issues it regards as “relevant to the case and material to its outcome”. The tribunal is also invited to promptly identify issues for which a preliminary determination may be appropriate. Indeed, the systematic organisation of arbitral proceedings by issues or phases is also expressly contemplated for the first time. Finally, great emphasis is placed on proportionate and fair methods of collecting evidence, particularly in the context of e-discovery. The rules also contemplate costs sanctions for any party that has “failed to conduct itself in good faith in the taking of evidence”.
Some of those concepts will resonate with those familiar with modern rules of English civil procedure – that of itself demonstrates the evolutionary nature of arbitration. Not so long ago, it was heretical to suggest that arbitration might borrow concepts from its poorer litigation cousin. In the period prior to the 1996 Arbitration Act, there was little evident difference between litigation and arbitral practice and procedure: court rules of evidence, civil procedure and other features of litigation were commonly adopted. One of the purposes of the Act was to remove arbitration from this litigation template and encourage a more flexible approach to dispute resolution.
The revisions to the IBA Rules suggest a recalibration of arbitral procedure: a clear shift towards a proactive, prescriptive and needs-based approach. These and other innovations recognise that, over the years in which arbitration has grown and developed, so, too, have other forms of dispute resolution, including mediation and litigation. The modern iteration of each of these systems has much to commend itself.
The challenge for arbitration is to strike a balance between its essential hallmark of flexibility and the recognition that this characteristic alone is no longer enough to endear arbitration to all end users. The system needs to allow for a thorough examination of relevant issues, in a rigorous and focused procedure, proportionate to the needs and expectations of all parties. Arbitration will meet that challenge. Its continued success depends upon it.
Lord Goldsmith QC is a partner and Sophie Lamb is an international counsel at Debevoise & Plimpton